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Page added on December 7, 2018

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World Bank Warns Of Extreme Volatility In Oil Markets

Business

After several months of oil price rises and then a sharp reversal over the last few weeks, world oil markets are in for more heightened volatility next year because of scarce spare production capacity among OPEC members. This warning comes from the World Bank, which in the latest edition of its Russia Economic Report said that OPEC was the single most important factor for oil price outlooks in the short term.

“As non-OPEC oil supply growth is expected to be greater than that of global demand, the outlook for oil prices depends heavily on supply from OPEC members,” the report’s authors noted. The level of spare capacity among OPEC members is estimated to be low at present, suggesting there are limited buffers in the event of a sudden shortfall in supply of oil, raising the likelihood of oil price spikes in 2019.”

The World Bank is not alone in seeing OPEC’s spare capacity as an important factor for oil prices going forward. Spare capacity provides a cushion against price shocks as evidenced most recently by the June decision of the cartel and Russia to start pumping more again after 18 months of cutting to arrest a too fast increase in oil prices. They had the capacity to do it and prices stopped rising, helped by downward revisions of economic forecasts.

Now, the oil market is plagued with concerns about oversupply, but this could change quite quickly if there is any sign that OPEC is nearing the end of its spare production capacity. As to the likelihood of such a sign emerging anytime soon, this remains to be seen.

The U.S. Energy Information Administration estimates OPEC’s spare capacity at a little over 1 million bpd as of the fourth quarter of this year. That’s down from 2.1 million bpd at the end of 2017, but with Venezuela’s production in free fall and with Iran pumping less because of the U.S. sanctions, the total spare capacity of the group has declined substantially.

A Nigerian oil official in September echoed the sentiment expressed by the World Bank in its Russia report. “OPEC will do everything to stabilize, to balance the market but I’m sure you’re also aware that there’s a limit to what they can do. You must have the spare capacity,” NNPC’s head of oil marketing told Reuters in late September, when the cartel was still expanding production to put a lid on prices.

For now, it seems that this spare capacity would not be needed as we go into 2019. Economic forecasts suggest stable but slower oil demand growth as emerging economies, notably China, grow at a slower pace. Interestingly, the effect of such forecasts on prices is invariably negative regardless of the downward revisions in these growth outlooks. China’s economy, for example, is seen to grow by 6.3 percent next year by local economists. That’s compared with an estimated 6.6 percent this year. The difference is just 0.3 percentage points, but it is seen as significant enough for prices to stay where they are.

The price shocks could be caused by production outages in some of the less stable OPEC members or by a surprising jump in demand, the latter being less likely than the former. The market for crude oil is already supervolatile, what with the U.S.-China trade war, the cuts discussed by OPEC, and the internal tensions in the cartel that make an agreement on these cuts far from certain. A production outage in Libya or Nigeria could indeed lead to a price spike very quickly because of the scarce spare capacity in OPEC. On a positive note, these production outages tend to be shorter these days, so any price spike caused by one would be short-lived.

By Irina Slav for Oilprice.com



23 Comments on "World Bank Warns Of Extreme Volatility In Oil Markets"

  1. Duncan Idaho on Fri, 7th Dec 2018 9:39 am 

    OIL (BRENT) PRICE COMMODITY
    62.79 USD+ 2.48 (4.11%)

  2. rockman on Fri, 7th Dec 2018 10:28 am 

    Wow! Volatility in the coming oil futures market! What a brave call. So it won’t be steady and even as it has been for the last 10 years:

    https://www.investing.com/commodities/crude-oil-streaming-chart

    LMFAO!!!

  3. Go Speed Racer on Fri, 7th Dec 2018 11:16 am 

    Warning, volatility in oil markets.

    Your SAE 30 might turn into 40 weight.
    Your 90 weight gear lube will turn into power steering fluid. Your Automatic transmission fluid will turn into axle grease.

    Be careful of volatility in oil markets it could damage your car on the way to the drive-in.

  4. Anonymous on Fri, 7th Dec 2018 7:30 pm 

    1. Absolutely no numerical analysis of recent volatility.

    2. For what it is worth, volatility is actually lower than historical. But in any case, no numbers.

    3. OPEC “spare capacity” is designed to RAISE PRICES. Prices would be lower, if they pumped all out and had no spare capacity.

    4. The whole idea of trying to minimize volatility versus price is moronic.

  5. deadly on Sat, 8th Dec 2018 3:40 am 

    US crude oil exports to China

    That’s what charts are for.

  6. boney joe on Sat, 8th Dec 2018 6:53 am 

    NORTH CAROLINA ELECTION JUDGES REFUSE TO CERTIFY 2018 ELECTION ASSERTING WIDESPREAD REPUBLICAN VOTER FRAUD

    https://www.washingtonpost.com/politics/2018/12/05/shoe-leather-reporting-boosting-north-carolinas-explosive-election-fraud-investigation/?utm_term=.15bff7c4b990

  7. This is JuanP on Sat, 8th Dec 2018 6:57 am 

    boney joe on Sat, 8th Dec 2018 6:53 am NORTH CAROLINA ELECTION JUDGES REFUSE TO CERTIFY 2018 ELECTION ASSERTING WIDESPREAD REPUBLICAN VOTER FRAUD https://www.washingtonpost.com/politics/2018/12/05/shoe-leather-reporting-boosting-north-carolinas-explosive-election-fraud-investigation/?utm_term=.15bff7c4b990

  8. This is JuanP on Sat, 8th Dec 2018 6:58 am 

    The Truth Shall Set You Free on Sat, 8th Dec 2018 6:37 am All the yellow vests are just nasty whitey racists who have no right to complain about anything. They invaded Europe and displaced the mudslimes in the 16th century anyway!! No wait… I am going to go and cry in the corner and read Hillary’s autobiography sob sob sob

  9. Davy on Sat, 8th Dec 2018 7:00 am 

    dirty juan, I thought you would sleep in some being up all night in your sockpuppetry and identity theft frenzy. LOL. Maybe you need some lithium instead. How much cocaine did you blow? Boney Juan told us all about that habit. This is the problem with sock puppets it is like talking in your sleep.

  10. The Truth Shall Set You Free on Sat, 8th Dec 2018 7:54 am 

    Question: Where is the Republican outrage over North Carolina Republican voter fraud?

    Donald Trump & RNC Response: The sound of crickets.

    After all, President Chump tweeted about this issue relentlessly in 2017 so why now the silence?

    Anybody?

  11. boney joe on Sat, 8th Dec 2018 7:56 am 

    “Boney Juan told us all about that habit.”

    DavyScum, show us now where boney joe “told us all about it”? Dates and article.

    Otherwise, you are proving AGAIN you are a bald faced LIAR.

  12. This is JuanP on Sat, 8th Dec 2018 8:01 am 

    boney joe on Sat, 8th Dec 2018 7:56 am
    “Boney Juan told us all about that habit.” DavyScum, show us now where boney joe “told us all about it”? Dates and article. Otherwise, you are proving AGAIN you are a bald faced LIAR.

  13. JuanP on Sat, 8th Dec 2018 8:15 am 

    I love watching puppies on YouTube! ROFLMFAO!

  14. Davy on Sat, 8th Dec 2018 9:22 am 

    “DavyScum, show us now where boney joe “told us all about it”

    Boney Juan, I don’t have time to research your denials. You do admit you defended cocaine as a benign drug. If not you are the liar.

  15. JuanP on Sat, 8th Dec 2018 9:35 am 

    I sometimes wonder whether Davy is aware of his multiple personalities. LOL! Now he seems to be obsessed with cocaine! It is always one thing or another with this guy! Using Cocaine is bad for your health, Davy. If you must indulge because you can’t control yourself try to do it with moderation. Addictions ruin lives!

  16. Cloggie on Sat, 8th Dec 2018 9:41 am 

    The Truth Shall Set You Free on Sat, 8th Dec 2018 6:37 am All the yellow vests are just nasty whitey racists who have no right to complain about anything. They invaded Europe and displaced the mudslimes in the 16th century anyway!!

    Mobster, you may have your Americans under control, well until November 2016 that is, in Europe it has always been train time for you.

    Here yellow vests pictures from Holland and France, all white:

    http://www.spiegel.de/fotostrecke/gelbwesten-wir-wollen-uns-gehoer-verschaffen-fotostrecke-165643-10.html

    #JeSuisGiletsJaunes

  17. Davy on Sat, 8th Dec 2018 10:41 am 

    Sorry Juan. I’ve been feeling more deranged then usual lately.

  18. Davy on Sat, 8th Dec 2018 11:06 am 

    “I sometimes wonder whether Davy is aware of his multiple personalities.LOL!”
    Says the deadbeat identity stealing and sock puppeteering pervert. LOL is on you.

    “Now he seems to be obsessed with cocaine! It is always one thing or another with this guy! Using Cocaine is bad for your health, Davy.”
    Dirty juan, you are the one downplaying its danger through your sock boney juan. That is a sure sign you are indulging. We know you like bisexual sex too. Boney juan told us. LOL.

  19. This is JuanP on Sat, 8th Dec 2018 11:07 am 

    Davy on Sat, 8th Dec 2018 10:41 am
    Sorry Juan. I’ve been feeling more deranged then usual lately.

  20. This is JuanP on Sat, 8th Dec 2018 11:07 am 

    “The Truth Shall Set You Free on Sat, 8th Dec 2018 6:37 am All the yellow vests are just nasty whitey racists”

  21. Davy on Sat, 8th Dec 2018 11:11 am 

    After re-reading my above comment I’ve come to the realization that I’ve completely lost my mind now.

  22. This is JuanP on Sat, 8th Dec 2018 11:14 am 

    Davy on Sat, 8th Dec 2018 11:11 am After re-reading my above comment I’ve come to the realization that I’ve completely lost my mind now.

  23. This is JuanP on Sat, 8th Dec 2018 11:31 am 

    Davy on Sat, 8th Dec 2018 11:06 am
    “I sometimes wonder whether Davy is aware of his multiple personalities.LOL!”
    Says the deadbeat identity stealing and sock puppeteering pervert. LOL is on you.
    “Now he seems to be obsessed with cocaine! It is always one thing or another with this guy! Using Cocaine is bad for your health, Davy.”
    Dirty juan, you are the one downplaying its danger through your sock boney juan. That is a sure sign you are indulging. We know you like bisexual sex too. Boney juan told us. LOL.

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